SECURITIES AND EXCHANGE COMMISSION 17 CFR PARTS 210, 229, 240 AND 249 [RELEASE NOS. 33-8617; 34-52491; File No. S7-08-05] RIN 3235-AJ29 REVISIONS TO ACCELERATED FILER DEFINITION AND ACCELERATED DEADLINES FOR FILING PERIODIC REPORTS AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: We are proposing to modify the periodic report filing deadlines so that only the largest accelerated filers (those with a market value of outstanding voting and non-voting common equity held by non-affiliates of $700 million or more) become subject to the final phase-in of the accelerated filing transition schedule that will require annual reports on Form 10-K to be filed within 60 days after fiscal year end. Under our proposed amendments, however, these companies would continue to file their quarterly reports on Form 10-Q under the current 40-day deadline, rather than the 35-day deadline that was scheduled to apply to quarterly reports filed next year. Other accelerated filers would continue to file both their annual and quarterly reports under current deadlines – 75 days after fiscal year end for annual reports on Form 10-K and 40 days after quarter end for quarterly reports on Form 10-Q. We also are proposing to revise the definition of the term “accelerated filer” to permit an accelerated filer that has voting and non-voting common equity held by non-affiliates of less than $25 million to exit accelerated filer status promptly and begin filing its annual and quarterly reports on a non-accelerated filer basis. Finally, the proposed amendments would permit a large accelerated filer that has voting and non-voting common equity held by non-affiliates of less than $75 million to promptly exit large accelerated filer status. DATES: Comments should be received on or before [insert date 30 days after publication in the Federal Register]. ADDRESSES: Comments may be submitted by any of the following methods: Electronic comments: • Use the Commission’s Internet comment form http://www.sec.gov/rules/proposed.shtml; or • Send an e-mail to [email protected]. Please include File Number S7-08- 05 on the subject line; or • Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper comments: • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-9303. All submissions should refer to File Number S7-08-05. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments will also be available for public inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE, Washington, DC 20549. All comments received will be posted without change; we do 2 not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Katherine W. Hsu, Special Counsel, Office of Rulemaking, at (202) 551-3430, Division of Corporation Finance, U.S. Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-3628. SUPPLEMENTARY INFORMATION: We are proposing amendments to Rules 3-01,1 3-092 and 3-123 of Regulation S-X,4 Item 1015 of Regulation S-K,6 Forms 10-Q, 10-K and 20-F7 under the Securities Exchange Act of 1934 (“Exchange Act”)8 and Exchange Act Rules 12b-2,9 13a-1010 and 15d-10.11 I. Background A. Initial Adoption of Accelerated Filing Requirements On September 5, 2002, we adopted new rules requiring larger public companies filing annual reports on Form 10-K and quarterly reports on Form 10-Q to file these reports on an accelerated basis.12 We adopted the accelerated filing requirements as part of a series of steps to modernize and improve the usefulness of the periodic reporting 1 17 CFR 210.3-01. 2 17 CFR 210.3-09. 3 17 CFR 210.3-12. 4 17 CFR 210.1-01 et seq. 5 17 CFR 229.101. 6 17 CFR 229.10 et seq. 7 17 CFR 249.308a; 17 CFR 249.310; and 17 CFR 249.220f. 8 15 U.S.C. 78a et seq. 9 17 CFR 240.12b-2. 10 17 CFR 240.13a-10. 11 17 CFR 240.15d-10. 12 See Release No. 33-8128 (Sept. 5, 2002) [67 FR 58480]. 3 system. The term “accelerated filer,” which is used to describe these issuers, is defined in Exchange Act Rule 12b-2 and applies to an issuer once it first meets all of the following conditions as of the end of its fiscal year: • The issuer has an aggregate market value of voting and non-voting common equity held by non-affiliates of the issuer (referred to as “public float”) of $75 million or more,13 as of the last business day of the issuer’s most recently completed second fiscal quarter;14 • the issuer has been subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act15 for a period of at least 12 calendar months; • the issuer previously has filed at least one annual report; and • the issuer is not eligible to use Forms 10-KSB16 and 10-QSB17 for its annual and quarterly reports. The definition of an accelerated filer also contains specific requirements concerning the entry into, and exit from, accelerated filer status. These requirements provide that the determination of whether a non-accelerated filer becomes an accelerated filer as of the end of its fiscal year governs the filing deadlines for the annual report on Form 10-K to be filed for that fiscal year, for the quarterly reports on Form 10-Q to be 13 The $75 million public float threshold in the accelerated filer definition, though not the date of determination, is the same as the public float eligibility requirement for registration of a primary offering for cash on Form S-3 or Form F-3. 14 For purposes of the accelerated filer definition, the issuer must compute the aggregate market value of its outstanding voting and non-voting common equity by use of the price at which the common equity was last sold, or the average of the bid and asked prices of such common equity, in the principal market for such common equity, as of the last business day of its most recently completed second fiscal quarter. 15 15 U.S.C. 78m(a) or 78o(d). 16 17 CFR 249.310b. 17 17 CFR 249.308b. 4 filed for the subsequent fiscal year and for all such annual and quarterly reports to be filed thereafter.18 Currently, once a company becomes an accelerated filer, it remains an accelerated filer unless and until it subsequently becomes eligible to use Forms 10-KSB and 10-QSB for its annual and quarterly reports.19 We originally determined to phase-in the accelerated filing deadlines over a three- year period in an effort to balance the market’s demand for more timely information with the time that issuers need to prepare accurate information without undue burden.20 In the accelerated filer adopting release, we anticipated that a gradual transition period would allow issuers to adjust their reporting schedules and develop efficiencies to ensure that the quality and accuracy of their reported information would not be compromised.21 Year one of the phase-in period began for accelerated filers with fiscal years ending on or after December 15, 2002. During year one, the Form 10-K annual report deadline remained at 90 days after fiscal year end, and the Form 10-Q quarterly report deadline remained at 45 days after quarter end, but accelerated filers became subject to 18 While the accelerated filer definition does not by its terms exclude foreign private issuers, to date, the filing deadlines for accelerated filers have had application only with respect to foreign private issuers that file annual reports on Form 10-K and quarterly reports on Form 10-Q. In another action that the Commission takes today to defer the compliance date for our rules implementing application of Section 404 of the Sarbanes-Oxley Act of 2002 [15 U.S.C. 7262] for an additional year for certain issuers, until fiscal years commencing on or after July 15, 2007, the deferral would extend to foreign private issuers that are not accelerated filers. 19 See Exchange Act Rule 12b-2. See also Item 10(a)(2) of Regulation S-B [17 CFR 228.10(a)(2)] for the conditions for entering and exiting the small business reporting system. A reporting company that is not a small business issuer must meet the definition of a small business issuer at the end of two consecutive fiscal years before it becomes eligible to file Forms 10-KSB and 10-QSB. The term “small business issuer” is defined in Rule 12b-2 as a U.S. or Canadian issuer that is not an investment company and that has less than $25 million in revenues and public float. If the issuer is a majority-owned subsidiary, it meets the definition of a small business issuer only if the parent corporation is also a small business issuer. 20 See Release No. 33-8128. 21 Id. 5 new disclosure requirements concerning Web site access to their Exchange Act reports.22 In year two, the deadline for annual reports on Form 10-K filed for fiscal years ending on or after December 15, 2003 was accelerated to 75 days and the deadline for the three subsequently filed quarterly reports on Form 10-Q was accelerated to 40 days. In year three, the Form 10-K annual report deadline was to become further accelerated to 60 days for reports filed for fiscal years ending on or after December 15, 2004, and the deadline for the three subsequently filed quarterly reports on Form 10-Q was to accelerate to 35 days. This would have completed the phase-in for all accelerated filers, with the 60-day and 35-day deadlines remaining in place for Form 10-K and Form 10-Q, respectively, for all subsequent periods. B. One-Year Postponement of the Final Phase-In Period for the Accelerated Periodic Report Deadlines However, in year two of the phase-in period, several issuers and auditors expressed concern over their ability to perform the work necessary to file reports timely and, in particular, to comply with the Commission’s new internal control over financial reporting requirements23 mandated by Section 404 of the Sarbanes-Oxley Act of 2002 at the same time that periodic report deadlines were scheduled to be further accelerated.24 The Commission acted in response to the concerns voiced by issuers and auditors by providing additional time and opportunity for accelerated filers and their auditors to focus 22 Id. Accelerated filers are required to disclose in their annual reports where investors can obtain access to their filings, including whether the company provides access to its Form 10-K, 10-Q and 8- K reports on its Internet Web site, free of charge, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the Commission. See Item 101(e)(4) of Regulation S-K [17 CFR 229.101(e)(4)]. 23 See Exchange Act Rules 13a-15 and 15d-15 [17 CFR 240.13a-15 and 15d-15] and Item 308 of Regulations S-K and S-B [17 CFR 229.308 and 228.308], as adopted in Release No. 33-8238 (June 5, 2003) [68 FR 36636]. 24 See note 18 in Release No. 33-8477 (Aug. 25, 2004) [69 FR 53550]. 6 on complying with the new internal control reporting requirements. First, in February 2004, we extended the Section 404 rule compliance dates so that an accelerated filer had to begin complying with the internal control reporting requirements for its first fiscal year ending on or after November 15, 2004, rather than its first fiscal year ending on or after June 15, 2004.25 In November 2004, we postponed for one year the final phase-in period for acceleration of the annual and quarterly report filing deadlines on Forms 10-K and 10-Q. The amendments permitted an accelerated filer’s annual report on Form 10-K for a fiscal year ending on or after December 15, 2004, but before December 15, 2005, to be filed within 75 days, rather than 60 days, after fiscal year end and the three subsequently filed quarterly reports on Form 10-Q to be filed within 40 days, rather than 35 days, after the end of a fiscal quarter. Under the amended accelerated phase-in schedule that currently governs the periodic report filing deadlines, annual reports on Form 10-K filed by accelerated filers for fiscal years ending on or after December 15, 2005 will be due within 60 days after fiscal year end and quarterly reports on Form 10-Q will be due within 35 days after fiscal quarter end, thereby completing the final phase-in period. II. Discussion of Proposed Amendments Based on various comments from issuers and auditors, and a recent recommendation from the SEC Advisory Committee on Smaller Public Companies regarding the accelerated filing deadlines,26 we are proposing to amend the definition of 25 Release No. 33-8392 (Feb. 24, 2004) [69 FR 9722]. 26 The Commission organized the Advisory Committee on March 23, 2005 to examine the impact of the Sarbanes-Oxley Act and other federal securities laws on smaller public companies. 7 accelerated filer and to further amend the accelerated filing deadlines. We are proposing to amend the accelerated filer rules to: • create a new category of accelerated filer, the “large accelerated filer,” for issuers with an aggregate worldwide27 market value of voting and non-voting common equity held by non-affiliates of the issuer of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter;28 • amend the accelerated filing deadlines so that the 60-day Form 10-K annual report deadline would apply only to the proposed new large accelerated filers. The Form 10-Q quarterly report filing deadline for large accelerated filers would remain at 40 days with no further reduction provided in our rules. Periodic report deadlines for other accelerated filers would remain at 75 days for annual reports on Form 10-K and 40 days for quarterly reports on Form 10-Q, again with no further reduction provided in our rules;29 • allow an accelerated filer with less than a $25 million aggregate worldwide market value of voting and non-voting common equity held by non-affiliates of the issuer, as of the last business day of the issuer’s most recently completed second fiscal quarter, to exit accelerated filer status without a second year’s determination or other delay;30 and 27 As discussed in Section II.D of this release, we are proposing to modify the existing Rule 12b-2 definition of “accelerated filer” to refer to the company’s “aggregate worldwide market value” rather than “aggregate market value.” 28 See paragraph 2 of the proposed Exchange Act Rule 12b-2 definition of “accelerated filer and large accelerated filer.” 29 See proposed amendments to Exchange Act Forms 10-K [17 CFR 249.310] and 10-Q [17 CFR 249.308a]. 30 See paragraph 3(ii) of the proposed Exchange Act Rule 12b-2 definition of “accelerated filer and large accelerated filer.” 8 • allow a large accelerated filer with less than a $75 million aggregate worldwide market value of voting and non-voting common equity held by non-affiliates of the issuer, as of the last business day of the issuer’s most recently completed second fiscal quarter, to exit large accelerated filer status.31 We believe that the proposed deadlines would strike the appropriate balance between the timeliness and accessibility of Exchange Act reports to investors and to the financial markets and the need of companies and their auditors to conduct, without undue cost, high-quality and thorough assessments and audits of the financial statements contained in the reports. The deadline for filing an annual report on Form 20-F has not been accelerated and we are not proposing to do so in this release. However, the current definition of accelerated filer and the proposed definitions of accelerated filer and large accelerated filer do not exclude companies that qualify as foreign private issuers. As a result, a foreign private issuer that voluntarily files on Forms 10-K and 10-Q is required to determine whether it is an accelerated filer or large accelerated filer and, if so, must comply with the applicable deadlines. A foreign private issuer that loses its status as such and is therefore required to file reports on Forms 10-K and 10-Q must do likewise. 31 See paragraph 3(iii) of the proposed Exchange Act Rule 12b-2 definition of “accelerated filer and large accelerated filer.” 9 A. Large Accelerated Filers We are proposing amendments to the Exchange Act Rule 12b-2 definition of “accelerated filer” to create a new category of accelerated filers to be designated as “large accelerated filers.”32 Under the proposed amendments, an issuer would become a large accelerated filer once it meets the following conditions for the first time at its fiscal year end: • The issuer had an aggregate worldwide market value of voting and non-voting common equity held by its non-affiliates of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter;33 • the issuer has been subject to the reporting requirements of Exchange Act Section 13(a) or 15(d) for a period of at least 12 calendar months; • the issuer has filed at least one annual report pursuant to Section 13(a) or 15(d); and • the issuer is not eligible to use Forms 10-KSB and 10-QSB for its annual and quarterly reports. The proposed $700 million public float threshold in the large accelerated filer definition, though not the time of determination, is the same as the public float eligibility requirement that we used in our recently adopted Securities Offering Reform final rules34 32 See paragraph 2 of the proposed Exchange Act Rule 12b-2 of “accelerated filer and large accelerated filer.” 33 As a related change, we propose to re-define an accelerated filer as an issuer with an aggregate market value of voting and non-voting common equity held by non-affiliates of $75 million or more and less than $700 million. See paragraph (1)(i) of the proposed Exchange Act Rule 12b-2 definition of “accelerated filer and large accelerated filer.” 34 Release No. 33-8591 (July 19, 2005) [70 FR 44722]. 10